Krugman: Acting on climate change really not that expensive

Paul Krugman says U.S. Chamber of Commerce report indicates new EPA rules would wreak havoc, but its own report shows otherwise.

By Paul Krugman

Updated 7:36 pm, Friday, May 30, 2014

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Krugman: Acting on climate change really not that expensive

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Next week, the Environmental Protection Agency is expected to announce new rules designed to limit global warming. Although we don't know the details yet, anti-environmental groups are already predicting vast costs and economic doom. Don't believe them. Everything we know suggests that we can achieve large reductions in greenhouse gas emissions at little cost to the economy.

OK, that's not the message the Chamber of Commerce was trying to deliver in the report it put out Wednesday. It clearly meant to convey the impression that the EPA's new rules would wreak havoc.

But if you focus on the report's content rather than its rhetoric, you discover that despite the chamber's best efforts to spin things - as I'll explain later, the report almost surely overstates the real cost of climate protection - the numbers are remarkably small.

Specifically, the report considers a carbon-reduction program that's probably much more ambitious than we're actually going to see, and it concludes that between now and 2030 the program would cost $50.2 billion in constant dollars per year. That's supposed to sound like a big deal. Instead, if you know anything about the U.S. economy, it sounds like Dr. Evil intoning "one million dollars." These days, it's just not a lot of money.

Remember, we have a $17 trillion economy right now, and it's going to grow over time. So what the Chamber of Commerce is actually saying is that we can take dramatic steps on climate - steps that would transform international negotiations, setting the stage for global action - while reducing our incomes by only one-fifth of 1 percent. That's cheap!

Alternatively, consider the chamber's estimate of costs per household: $200 per year. Since the average U.S. household has an income of more than $70,000 a year, and that's going to rise over time, we're again looking at costs that amount to no more than a small fraction of 1 percent.

One more useful comparison: The Pentagon has warned that global warming and its consequences pose a significant threat to national security. (Republicans in the House responded with a legislative amendment that would forbid the military from even thinking about the issue.) Currently, we're spending $600 billion a year on defense. Is it really extravagant to spend another 8 percent of that budget to reduce a serious threat?

And all of this is based on numbers from the anti-environmentalists themselves. The real costs would almost surely be smaller, for three reasons.

First, the Chamber of Commerce study assumes that economic growth, and the associated growth in emissions, will be at its historic norm of 2.5 percent a year. But we should expect slower growth as baby boomers retire, making emissions targets easier to hit.

Second, in the chamber's analysis, the bulk of the reduction in emissions comes from replacing coal with natural gas. This neglects the dramatic technological progress taking place in renewables, especially solar power, which should make cutting back on carbon even easier.

Third, the U.S. economy is still depressed - and in a depressed economy many of the supposed costs of compliance with energy regulations aren't costs at all. Building new, low-emission power plants would employ both workers and capital that would otherwise sit idle, and would, if anything, boost the U.S. economy.

You might ask why the Chamber of Commerce is so fiercely opposed to action against global warming, if the cost of action is so small. The answer, of course, is that the chamber is serving special interests, notably the coal industry - what's good for America isn't good for the Koch brothers, and vice versa - and also catering to the ever more powerful anti-science sentiments of the Republican Party.

Finally, let me take on the last line of defense by the anti-environmentalists - the claim that whatever we do won't matter, because other countries, China in particular, will just keep on burning ever more coal. This gets things exactly wrong. Yes, we need an international agreement to reduce emissions, including sanctions on countries that don't sign on. But U.S. unwillingness to act has been the biggest obstacle to such an agreement. If we start taking serious steps against global warming, the stage will be set for Europe and Japan to follow suit, and for concerted pressure on the rest of the world as well.

Now, we haven't yet seen the details of the new climate action proposal, and a full analysis - both economic and environmental - will have to wait. We can be reasonably sure, however, that the proposal's economic costs will be small, because that's what the research - even by anti-environmentalists - tells us. Saving the planet would be remarkably cheap.